Stocks Set Adrift After Losing Propellers and Anchors

Another volatile week in the U.S. equity market highlighted an inconvenient reality that investors have not yet fully grasped: Stocks now lack not just upward drivers but also anchors to maintain what has been an astonishing disconnect between elevated prices and challenged economic and corporate realities.

The market has seemingly exhausted three potent drivers of returns — policy support, fundamentals and retail inflows — and investors are left searching for a new fuel for a market that is now missing not just momentum but also a stabilizer. Their hope is that the Federal Reserve will come to the rescue again with a new round of policy support. This “Fed put” has proved to be highly effective in the past in repressing volatility, enticing more risk-taking and attracting additional investment funds. The risk is that the central bank feels more compelled to wait for further signs of market stress before extending an already stretched, if not overstretched, policy response.